THE commercial property industry should start “thinking outside the box” to deliver developments that can compete in an increasingly difficult market, a leading property adviser has said.

In its annual South Wales Economic and Property Market Review (EPMR), GVA Grimley says there is reason to be optimistic in the commercial property market.

The report points to a number of high-profile and retail schemes currently in the market. There is 48,000 sq ft of Grade A office space available at The Orb in Newport’s waterside regeneration area, and J R Smart’s 58,000 sq ft Capital Link Scheme due to be completed in spring next year.

In the retail sector, one million sq ft St David’s 2 in Cardiff is due for completion in autumn 2009, while the industrial market in recent months has become increasingly polarised to the lettings market due to the lack of liquidity in the financial system.

Steve Gibbon, GVA Grimley director in Cardiff, said: “For many, these are challenging and unprecedented times. The crisis in the global financial markets is now firmly impacting on all sectors of property.

“The performance of a number of high-profile office and retail schemes will begin to provide a useful barometer of the conditions in the South Wales market.”

The report states that amid the capital growth volatility of recent years, and the present difficult market conditions, rental growth in Wales has remained subdued.

According to investment property databank, rental growth reached a nine-year high of just 2.9% in 2007. And while average rental growth has slowed to 1% currently, it is expected to contract by a further 1% a year next year and in 2010, before moving back into positive territory thereafter.

However, with increasing unemployment and a recession, GVA Grimley says the risks to rental growth are on the downside.

Commercial property investment activity has fallen significantly in the UK since the peak of the market in summer 2007, and Wales has been no exception, GVA said.

However, while the market continues to deteriorate, there are a number of property companies and some institutional funds waiting in the wings to invest, with GVA Grimley optimistic that there will be increased activity come the spring of 2009.

The office market has benefited from a significant number of larger lettings of speculatively built space in the past year, in Cardiff, Newport and Swansea, including Admiral Insurance taking 28,000 sq ft at Langstone Business Park, Newport, British Gas agreeing to take 70,000 sq ft at Callaghan Square, Cardiff, and 30,000 sq ft to the Vehicle and Operator Services Agency (VOSA) at the Ellipse building in Swansea.

This is in contrast to the significant decrease in the rate of transactions of smaller office premises in the city centres. Rent-free periods and other incentives have increased dramatically this year and look set to continue to do so in 2009.

GVA said that investment deals in South Wales totalled £30m in quarter three of 2008, compared to £116m the previous quarter.

In its report, GVA said it anticipates significantly more activity in the spring of 2009 with a large number of property companies and some institutional funds waiting to invest.

It added: “Financial liquidity remains the biggest issue within the housing market, for both mortgages to purchasers and development finance. Until liquidity returns to the market, recovery will be limited.

“Over the coming year, housing developers will be looking to re-balance their portfolios away from the high-rise apartment schemes and re-focus on traditional housing sites.

“It has been noticeable in the last month or so that residential developments which consist mainly of houses have achieved sales, whereas substantial flatted schemes only thrived in very bullish markets.”